Energy Commodity Exposure Is At An All-Time Low: How To Play It

According to a recent Flow of Funds report issued by Credit Suisse, energy commodity exposure is at all-time lows, at -22 percent. Holdings in this asset class are at an all-time low.

As per the firm's data, over the last week, U.S.-listed Exchange Traded Products (ETPs) saw net inflows of more than $3.5 billion, with domestic equity ETPs capturing more than $1.2 billion. Year-to-date, inflows now surpass $24 billion.

On the other hand, international equity ETP inflows reached $1.7 billion last week. Funds tracking MSCI EAFE witnessed some of the largest creations.

Moreover, the analysts noted, the net inflows took place even in spite of net outflows of $1 billion from Emerging Market ETPs.

Also experiencing outflows were Bond ETPs, which saw net outflows of $500 million, with substantial redemption activity in high yield.

Related Link: If Commodity Prices Don't Recover, These Investors Lose

Finally, in the lending market, it became cheaper to short Deutsche X-Trackers Harvest CSI 300 China A-Shares ETF ASHR, iShares Russell 2000 Index (ETF) IWM, and SPDR Barclays Capital High Yield Bnd ETF JNK.

On the contrary, it became significantly more expensive to borrow iShares JPMorgan USD Emer Mkt Bnd Fd ETF EMB, PowerShares DB US Dollar Index Bullish UUP and Sector Spdr Trust Sbi XLI.

Where Is The Money Going?

If energy commodity exposure is at all-time lows, where is the money going?

Large-cap and technology funds that saw the strongest inflows last week.

In a recent report, Investec’s Hunter Hillcoat explained why he expects the commodity market to remain "subdued" for "several years to come" with a "modest" recovery only in or after 2018.

Among companies to avoid the analyst named BHP Billiton Limited (ADR) BHP, Rio Tinto plc (ADR) RIO and Glencore International PLC, St. Helier GLCNF, mainly due to the “cheap debt” they have "gorged themselves" with over the past five years.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.